Spain’s economy has had a relatively successful past 12 months despite (or some have alleged, because of) the lack of a government. GDP has risen at an annual rate of 3.4% in the year to Q! 2016, the fastest growth in Western Europe by some distance while unemployment has fallen by 1.8 percentage points from 22.8% to 21.0% in the year to January. Youth unemployment has fallen even faster, from 51% a year ago to 45.5%.
Some of this turnaround is simply the end of destocking and is a one off boost. But the export and investment data also show a strengthening recovery. Investment in machinery rose by 10.3% last year Construction activity in particular is picking up after a downturn lasting 6 years and has grown at an annual rate of over 5% in recent quarters. Export growth is also running at about 5% per annum. Although GDP growth is likely to slow as the effect of the destocking boost comes to an end , it would be realistic to expect a continuation at 2.6%.this year and 2.2% next year.
The political situation is less encouraging. On 4 May King Felipe called elections for 26 June after the indecisive results of the election held last December left the country without a government for 6 months. At present the opinion polls point to a very similar result with the danger that the period of uncertainty will be prolonged. While countries can thrive for a period without a government, ultimately decisions do need to be made and cannot be postponed endlessly. While the endless dispute with Catalonia about independence will need to be resolved ultimately.
Meeting key people in the Spanish Flat White Economy, it is clear that this sector has good prospects. Good weather and a cheap and lively lifestyle are attractions to young people who hope to work in the industry in Spain and who provide the lifeblood for a growing sector. While the industry is only roughly half the share of GDP of the equivalent sector in the UK, it is growing at an annual rate of around 10% and currently employs 425,000 people.
The downside in Spain is the hangover from the property boom. Spanish house prices have fallen an average of 41% since the peak in 2007 though they seem to have flattened out now and may even be rising slightly in coastal areas. Fortunately the banks have in general not foreclosed on private owners but transactions are still sluggish. Though exact statistics are hard to find, it would appear that there are at least 800,000 properties for sale, which will overhang parts of the property market for some time to come. But cheap property is one of Spain’s attractions to young people who might move or return there to join the rapidly growing Flat White Economy, though the low cost of living is being reflected in lower rates of pay.
And Spain leads the world in at least two areas – the best soccer clubs and the best restaurants. Besides having El Celler de Can Roca, voted the best restaurant in the world in the 2015 San Pellegrino awards, Spain has 4 other restaurants in the top 20, more than any other country. A growing economy and good food….what’s not to like even if the politics look uncertain.
Douglas McWilliams, Cebr President